Afcons Infrastructure Limited is one of India’s leading engineering and construction companies with a strong contribution to the country’s infrastructure. Working under the Group of Shapoorji Pallonji, this enterprise has assured a very important space in undertaking challenging EPC projects. The blog post analyzes some of the dimensions of Afcons Infrastructure – their projects, financial performance, industry analysis, peer comparison, and key risks associated with its operations.
About Afcons Infrastructure Limited
Afcons Infrastructure Limited is one of the leading companies through the premium Shapoorji Pallonji Group. The firm primarily deals with EPC projects. EPC stands for Engineering, Procurement, and Construction. For instance, in case there is a project such as highway construction at Samdhi Mahar. At that point, engineers would first identify the best route to be followed, get the approvals, and then finally, they move forward for procurement and then go on to construction.
Some of the successful, high profile projects undertaken by Afcons are:
- CH Bridge: It is the tallest single arch rail bridge.
- Atal Tunnel: It is the longest high-altitude tunnel in the world and will be at an elevation of 3,000 meters above sea level.
- Kolkata Metro: It is considered a huge urban infrastructure project
- Mumbai-Ahmedabad High-Speed Railway: Under construction line and aimed for transport connectivity.
The company has completed 79 projects in 17 countries, while the historic contract value crossed ₹563 billion. At present, the company manages 65 active projects, which describes a strong order book of ₹317 billion.
Afcons GMP Business Verticals
Afcons is operational in five major infrastructure business verticals. They are listed as “.
Road Transport: Highway road construction.
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List of Projects
- Urban Infrastructure: Metro and underground works, including the projects of Kolkata and Pune Metro.
- Hydro and Underground Infrastructure: Underground tunnel constructions and other subterranean works.
- Oil and Gas: Various projects in the area of oil and gas.
The Indian construction industry is growing at a very fast pace. Between 2012 and 2024, GVA for this industry had gone up from ₹7.8 trillion to ₹14.4 trillion, with a growth rate of nearly 100%. Now there is an important distinction between GVA and GDP.
GVA: It measures the value added by the industries in the economy- In construction, for example.
- GDP: The total value addition of all industries in a country.
For instance, if Afcons is building a bridge costing ₹1,000 million and has spent ₹600 million on raw material input, then ₹400 million is the value addition to the GVA of the building activity. Perhaps this is why GVA needs to be more revered while trying to determine the health of any industry.
Total investment in metro projects in pipeline: more than $ 770 billion; that is, 70% of the total, with huge allocations both in planning as well as construction phases. Evidently, it is an extremely positive scenario for construction companies like Afcons.
Financial Performance
Afcons has maintained growth in the financials well. The revenues from operations have been stable at a compound annual growth rate of 9.72%, which scales up from ₹111 billion to ₹132 billion. PAT too has increased by a compound annual growth rate of 12%, moving from ₹3.57 billion to ₹4.49 billion.
Still, PAT margin still stands at very low 3.3%. The only explanation for such low PAT margins is that the nature of the project being undertaken by the company may be long term in nature and could tend to have raw material costs fluctuate wildly in such a duration. Of course, each project is different, but they have been known to pass on costs to clients, which are typically government contracts.
Order Book and Revenue Comparison
Afcons has of late reported an order book that is very impressive indeed with work on-going on 50% of its total completed projects. Its order book is around three times in terms of revenue and hence fairly strong for the pipeline of future work. Thus, this keeps Afcons well placed to sustain revenue growth.
Peer Comparison
Afcons has maintained supremacy over its closest peers, mainly Larsen & Toubro (L&T), in the context of revenue and market presence. However, from some specific facets, L&T has supremacy, as under:
- PAT margins are healthier at Afcons compared to KEC International and Kalpataru.
- From the revenue side, L&T leads; however, Afcons is well establishing itself in niche high-value projects.
Valuation Metrics
The price to earnings (P/E) ratio of Afcons happens to be even less than the industry average, positioned at 47.91. Here, it has been calculated to be about 35.07. Therefore, it is relatively undervalued compared with the rest, an opportunity that may be looked forward to by investors.
Afcons IPO GMP Risks:
Litigations valued at ₹50 billion have been levied on the company, much above the net profits.
The company still depends on governments for 70 percent of revenues, thus vulnerable to a decrease in public sector spending.
Cost Overruns: A rise in material costs can squeeze profit margins of the company, particularly with long-duration projects.
Afcons Infrastructure IPO and Issue Details
Afcons proposes to raise ₹54.3 billion through its IPO, which includes fresh equity worth ₹12.5 billion, and an offer for sale of ₹41.8 billion. The proceeds from the IPO will be utilized mainly towards loan repayments, long-term working capital, and as capital outlays for construction equipment.
| Application | Lot Size | Shares | Amount |
| Retail Minimum | 1 | 32 | ₹14,816 |
| Retail Maximum | 13 | 146 | ₹1,92,608 |
| S-HNI | 14 | 448 | ₹2,07,424 |
| B-HNI | 68 | 2176 | ₹10,07,488 |
The IPO would open on October 25 and close on October 29. The price band is to be declared later. This would give a chance to various investors to get on a growth trajectory of a company in a booming sector.
Afcons Infrastructure Limited is one of the leading players in the overall construction landscape of India. The company has executed some of the most complicated projects in its experience so far and maintains a healthy order book going forward. Its growth prospects in a resultant positive economic scenario as well make this company an exciting investment play. In the infrastructure space, where the demand is still increasing, Afcons is ready to lap up all the opportunities coming up in the space.
This bodes well for prospects in the construction sector, and here lies the emerging infrastructure capability of Afcons Infrastructure-India. For those interested in participating in the IPO, however, a due balance between risks and benefits would be warranted.